President Tony Bartel says value of downloadable games must be kept high to encourage profitability, innovation

The price of full digital games is falling, and GameStop president Tony Bartel finds the trend worrisome not just for his company, but for the industry as a whole. In a post-earnings conference call last week, Bartel shared some recent survey results, saying that gamers now expect to pay about $35 to buy a recently released full game through digital channels.

Bartel also noted that the promotional tool of including downloadable games with new console bundles has had an impact on this trend. Year-to-date, Bartel estimated that players have received $100 million worth of "free" downloadable games in hardware bundles.

"We want to help ensure that our industry does not make the same mistake as other entertainment categories by driving the perceived value of digital goods significantly below that of a physical game," Bartel said. "When the free digital token programs end, we believe that the industry will need to work together to continue to price goods in a way that sustains profitability and encourages a great innovation that this category needs."

When discussing barriers that digital games still need to overcome later in the call, Bartel said that the $20 to $25 price break gamers expect when going digital is largely due to the inability to sell it back to places like GameStop when players are finished. GameStop has previously said it wants to work with publishers in creating a second-hand market for downloaded games, but when asked for an update on the call, CEO J. Paul Raines would only say, "no comment, top secret."

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Bartel shared some recent survey results, saying that gamers now expect to pay about $35 to buy a recently released full game through digital channels.

I think there's a lack of context here? Either in the conference call, or in the survey. I'd be shocked if consumers were expecting to pay $35 for the latest CoD digitally, for example. But there's plenty of games that I'm sure that price (and lower) is what the consumer wants/expects - something like Journey, for example.

Edit:

Although, yes, I suppose on reflection, $35 makes sense - if you cross-off the ability to sell a game back for $15/20/25, then as a consumer you expect to make that saving elsewhere, like on the initial purchase price. I'd be curious about the specific questions asked on the survey, though, and also what demographics. And let's not forget the possibility of the consumer using the survey as a means of directing the industry on a path that's conducive to them (that is, they don't expect to pay $35 for a digital game, but would like to in the future).

Edited 4 times. Last edit by Morville O'Driscoll on 24th November 2014 4:17pm

There is usually a significant difference to the publisher in the cost of physical goods vs virtual goods (downloads included). There is also an additional cost for sales through secondary channels vs the direct sale. For previous console generations the developer has been reliant on physical stores (like GameStop) to make sales. In todays market, they have the opportunity to make the sale directly to the consumer, and do so with a lower cost product.

The question really needs to be: 'Is it in the best interest of the developer to support the sales of physical products from retailers vs direct sales of virtual products?' Perhaps it is time to start cutting the cord, and selling virtual products to the consumer at a price that makes just a much for the developer as the physical product via the retail store. This would be what? 20% of retail price?

The threat to his business is competition. People in the video game world figuring out that they can keep reducing the price of the product (which has a very low marginal cost) towards zero, possibly even to zero, and then figuring out how to make more money elsewhere.

It's an inexorable trend. I don't blame him for wanting to slow it down. But it will happen. And we all need to be ready for it.

I get a lot of games via digital now from XBL & PSN stores, and I'd buy all my new games via digital if they were the same price as retail..
I think just on XO alone I've downloaded almost 300gb of games in the last 30 days..
I've heard of Gamestop, although they are not a big player in the UK or Europe, and I'd be pissed (as would anyone) if digital prices are kept high just to appease any retailer, let alone a retailer in another country..

Last time I checked, they were paying 35-40 per per new title. So...he's upset that the consumer wants to pay what his stores pay...?
That the consumer thinking that, since digital incurs no distro costs, packaging, shipping, etc.. that the price SHOULD be lower for digital, is somehow wrong? I personally don't see anyone expecting to pay 35.00 for a new AAA title, but I do know MANY folks don't see why digital should be the same price or more than retail... makes no sense. Why should the consumers somehow be concerned with keeping his business alive and profitable? If he concerned, he should be..it's not like digital suddenly arrived... he's had a long view of this for years. Same thing that happened to the Blockbusters and Hollywood videos... was he not paying attention?

To me this sounds like the retailer finally admits they failed to understand the development of the digital market. Once the prices on the digital stores do more properly reflect its value (digital only, no re-sale and no physical parts) then it will rise much faster. Retail will become then almost uninteresting. Retail needs to position itself to offer special stuff, services, fair trade-in deals for physical goods, etc. The way most game retailers behave they will have to drop it for good which will just further boost the digital market.

"Bartel shared some recent survey results, saying that gamers now expect to pay about $35 to buy a recently released full game through digital channels."

That's an average price. For a high quality AAA title, I'm sure they're willing to pay more.

Also, the trend of freemium games is probably skewing the average price as well.

And yeah, competition does definitely bring lower prices. Which, in my opinion is a good thing. I do not really consider monopoly-driven prices to be fair to the consumer. I consider competition-driven prices to be much fairer.

And no, I don't believe lower prices will really bring less innovation to the table. If I take a look at Steam, the number of innovate titles has absolutely exploded. There's a game about native Alaskan culture. There's a whole crop of simulators. There are sandbox games and survival games. There are games that are reviving old genres and experimenting with new formulas. There's a whole host of indie games that are doing things that AAA titles don't dare touch, because they are too risky.

I'd say the innovation on Steam currently far outpaces anything GameStop has on its shelves.

It's the openness of the PC platform that makes it innovative, not the high prices of GameStop products. The ability for anybody to just throw together an idea and see if it works, that's innovation. Sure, R&D is great for AAA titles, but R&D has diminishing returns, and only innovates narrowly. It's more evolutionary than revolutionary. Which has its place, yes, but for things that are more revolutionary, high amounts of R&D aren't really the answer. Open platforms and low barriers to entry are how you get more revolutionary products.

And you know what? There are still $60+ titles on Steam. I have an ad for Call of Duty: Advanced Warfare on my Steam store page right now. I don't think they're going away, and I'm sure they'll still invest plenty into R&D.

They just have a bit more competition from indie games, and I think that's a good thing. Indie games may be cheaper, but they bring a lot of innovation to the table, because they're willing to take more risks.

The only thing I really see here is the rationalization of an old business model. If GameStop wants to survive, they really have to rethink the role of a physical store in the future. Truth be told, GameStop hasn't really been the patron saint of how to treat their customers, as they've gotten used to being a monopoly-like entity that can dictate how things work in the marketplace.

However, they're no longer in that position anymore, and I'm starting to see the signs that they're having to increasingly deal with their competition. Which will hopefully bring us better customer service and less monopolistic practices in the future.

If GameStop can't rethink the way it does business - well, I think they'll go the way of Blockbuster. And to be honest, I don't think I'll really be sad to see them go. As I've said - they haven't really been the patron saint of how to treat their customers.

Being a PC gamer, I've seen the future of digital downloads. I've been there for several years now. And yes, it's plenty innovative. I would argue it's more innovative than ever.

So welcome - don't be afraid. There's actually more innovation on the digital side of the divide.

on the subject of pricing, to be sustainable - be it mobile, fremium, console, etc - a fair price needs to be established. a rush towards zero will ultimately be self immolating/harming. doenst mean that such biz model might be great for certain game types.

Ultimately, free/zero price is obviously not free to make, and defiantely not free to play,
and so paying whats fair is fair and sustainable for all

The real problem is that the consumer has a gigantic misunderstanding of the savings between digital and packaged goods, especially on a console. The real world difference is between $3-5.

And yes, GameStop is pissed that this ecosystem isn't active, but they have no one to blame but Siny and the sheep that fell for it.

the consumer has a hard time attaching value to the intangible, or to understanding that yes, it cost $0.50 to press that CD. unfortunately what is ON that CD cost a quarter million to actually make. They also don't understand that digital has lower overhead, but the margin is almost the same as retail. And I'm not naive enough to think that they much care either.
I'm sure that GameStop has done lots of focus groups about ehy no one cares about their digital storefront, and they're seeing a world of the original Electronics boutique, which started as a kiosk in the King of Prussia mall selling NIntendo games. That they're going to end up as little more than a front that takes a piece for the majors to sell point cards and move their systems.

On the upside, a lot more developers will be seeing a lot more money because GameStop won't be buying and reselling week old games. I hope a happy medium can be found, because gaming needs strong, local outlets, just probably not as many of them as there are currently gamestops